Conduct Risk

The Individual Accountability Framework – release of the Department of Finance’s Regulatory Impact Analysis

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This article is a continuation of a series from Grant Thornton Financial Services Advisory that focuses on key aspects of the Individual Accountability Framework (“IAF”).
Contents

In this article, we discuss the recently released Regulatory Impact Analysis (“RIA”) conducted by the Department of Finance (the “Department”) on the IAF.  

Typically, the Department conducts RIAs to enhance the policy-making process by clarifying policy issues, highlighting key impacted stakeholders, and identifying key cost drivers. As such, the RIA provides insight into how the costs and benefits of the IAF were weighed against each other. It also provides some additional information on various aspects of the IAF including the upcoming stakeholder consultation.

Costs and Benefits of Implementing IAF

The Department weighed up the costs and benefits of implementing IAF against the costs and benefits of not intervening at all. The Department also engaged the Attorney General and the Central Bank of Ireland (“CBI”) to ensure that the IAF is both effective and stands up to constitutional challenge.

The RIA does not discuss the option of non-intervention in detail and says it is largely included for benchmarking purposes. The only benefit of non-intervention identified in the RIA is the potential for reduced CBI expenditure. By contrast, it states that the benefits of implementing IAF are considerable: it will help rebuild trust in the financial sector; it will act as a driver for positive change; and it will increase the efficiency of the CBI’s supervisory and enforcement work.

The main identified cost of the IAF is the increased regulatory burden on firms, especially firms subject to the Senior Executive Accountability Regime (“SEAR”). However, the RIA suggests that ongoing compliance costs will be significantly less than implementation costs and that firms can leverage many elements of their pre-existing control infrastructure to implement IAF.

International Context

The Department refers to the success of the UK’s Senior Managers and Certification Regime (“SMCR”) in effecting positive change and points out how the IAF was modelled on SMCR. Further, it also states that some of the more contentious elements of SMCR, such as Regulatory References, have not been replicated in the IAF.

Senior Executive Accountability Regime

The RIA does not provide many details about SEAR other than those which are already generally known but does offer the following insights: 

  • SEAR will initially have a consumer protection focus and will be primarily concerned with sectors where the protection of consumer interests is “essential”.
  • There will be a general list of prescribed responsibilities applicable to all firms, with tailored lists for different industry sectors and levels of firm scale/complexity.
  • If firms are part of a larger group, they will be required to provide details of the interaction of the firm’s and the group’s governance arrangements.

The RIA also states that, if a firm’s culture clearly demonstrates “appropriate behaviours and acceptance of responsibility”, such firm may be subject to a lighter regulatory touch so that the regulator can deploy its resources more effectively elsewhere. This is an interesting comment but it remains to be seen how this would play out in practice.

Conduct Standards

The RIA reminds stakeholders that the CBI will require firms to inform their staff about their obligations under the Conduct Standards and to provide training with regard to the responsibilities imposed upon them.

Fitness and Probity Regime

The RIA further reminds stakeholders that the F&P regime will be extended to financial holding companies due to the adoption of the EU’s amended capital requirements since the General Scheme was published in 2021.

Consultation Period

The RIA makes it clear that a large amount of stakeholder consultation still needs to take place. For example, the Department must consult the European Central Bank once the final IAF Bill has been published and the CBI must consult the Minister of Finance prior to the enactment of any regulations under the IAF Bill.

Regarding industry stakeholders, the CBI will conduct “extensive” consultation with the financial services sector after the final legislation has been enacted in order to “inform” the regulations and guidance. This implies that industry stakeholders will be required to comment on the IAF without first seeing the regulations and guidance which will likely be issued at some stage in the New Year.

However, the CBI is also committed to undertaking a comprehensive public consultation paper following the IAF’s enactment and, on the basis of comments received, will update the guidance and regulations “as appropriate”. As such, it is implied that there will be two public comment periods: one on the bill itself and another on the regulations and guidance. The CBI has also promised that there will be “continuous engagement” with relevant stakeholders to ensure that the IAF is achieving its objects on a go-forward basis.

GT View

Despite the multiple consultations, and the forthcoming detailed guidance, it is unlikely that there will be significant divergence across the SEAR, Conduct Standards and F&P elements from what has already been presented in the General Scheme, IAF Bill and speeches from the CBI. Per the RIA, there has already been significant work and coordination between the Department of Finance, Attorney General the CBI. It is also important to remember that IAF will impact all regulated entities, not just the 150 or so initially in scope for SEAR. SEAR is just one element. Therefore, all firms should be standing up programmes and preparing now.

Our Services and Contacts

Grant Thornton Ireland are well positioned to help your organisation deal with its IAF and SEAR-related queries. From bespoke advice to large-scale implementation projects, our subject matter experts in Conduct Risk are here to help your organisation with all things IAF-related.

For further information, please contact: